Monday, June 27, 2016

The Horror of Brexit: The Negative Impact on Ireland

(Full Disclosure: the author of this article is not an economist. But it doesn't take rocket science to figure out the possible ramifications of the British Exit from the EU)

Stock markets are in free-fall. Over the past two days global markets have lost over $1 trillion. The British Pound Sterling is a basket case. The currency has lost over 10% of its value overnight. In London, large financial services companies are already speaking of taking their cards off the UK table and running to a more favorable economy. The S&P, Fitch's, and Moody's have all downgraded Britain's AAA rating.

Such is the fall-out from Brexit at least in the short term. Not many realized just how horribly the Leave vote would affect the global economy.

But if you're working in, living in, or thinking of moving to Ireland, what might be the impact on you? Here are some possibilities and I'll keep this focused and to the point:

The Bad News

  • The UK is one of Ireland's most important trading partners - for that reason, this little country on the periphery of Europe will see a much greater impact than any other country in Europe or the world. 
  • The weakness of the Pound Will Hamper Exports - an obvious one. It will now take more Pounds to buy Irish goods and services. Irish businesses are bracing themselves. Those Irish businesses with existing contracts paid in Sterling will see the value of those payments fall by over 10% for the same goods they sold last week. This will deeply impact the profitability of many Irish companies, and subsequently, their ability to grow and hire.
  • Key Sectors to Watch - include Agriculture, Pharmaceuticals, and services. Agriculture in particular is highly exposed due to its reliance on exports to the UK
  • The Poor Banking Sector - is getting creamed right now in the Irish stock market as it dawns on investors that the Irish banking sector is highly exposed to the UK economy.
  • So if you're looking for a job - agriculture, pharmaceuticals, and financial services will possibly pull back in hiring efforts as they look to mitigate risk.
  • The Dire Possibility - the UK could well plunge into recession. If it does, and because of Ireland's reliance on the UK economy, Britain could take Ireland with it. If that happens we'll likely see a significant retraction in any growth forecasts, a drying up of Irish government tax revenues, and a fall in public spending (again, and just a few short years after the great recession).
  • Liquidity - as all of these factors come together, many Irish may once again feel a significant pinch in their pocket books as pension funds burn, wages are cut, social welfare payments fall, and folks here search for safe havens. 
  • Retail - may be caught yet again as consumer spending dries up. Same goes with larger purchases such as homes, cars, larger electronics, and similar. This could impact the slowly recovering construction industry here, already deeply hurt by the recession.
  • For those Brits living in Ireland it could be bad news - many British come here to retire. Many have pensions that pay in Sterling. Their monthly payments have today been reduced by about 10% due to the drastic currency swing. 
  • It's a Mess - and it's going to take some time to figure out. The Leave vote does not mean that Britain will exit the EU tomorrow. Instead, we are all faced with years of negotiations. Pundits are saying that it will take at least 2 years for the Exit to be formalized. During this time, the world markets - and Ireland - will continue to be faced with uncertainty.
The Good News

And there is some:

  • Some Sectors May Move to Ireland - due to uncertainty, some companies could actually exit Britain and move their operations to Ireland. Financial services would seem to be a good bet on this front. This is because many financial services businesses currently located in the UK require entree to the rest of Europe. That's why they set up in the UK in the first place. They could move to Ireland because this country continues to have the EU membership they look for, and a 12.5% corporate profits tax to go with it.
  • What To Look For - think 'low barriers to entry'. That is, those companies that can pull out of the UK inexpensively, and have something to gain in Ireland, will be the first to do so. So services (like International banking services) can quickly come here. Other companies (like manufacturers) will be slow to move because it's expensive to do so.
  • More Imports - if Irish exports will be negatively impacted by the fall in UK currency rates, imports will be positively impacted. It will be cheaper for the Irish to buy many goods from the UK. For instance, many will drive to Northern Ireland to get bargains there, at least in the short term (hurting Irish retailers located on the boarder in the process). Some cars should be cheaper (we don't manufacture cars in Ireland). Anything imported from the UK (and we import a lot including everything from food to refrigerators) will cost less. So if you're an importer and want a job in Ireland, now is the time.
  • Ireland: the last English Speaking Country in the EU - that's right, we are. And that could be leveraged to Ireland's advantage as companies look for English Speakers who are also still EU members who therefore have the right to sell goods and services across Europe.
This is a daunting time for the British and the world. But it's a daunting time for Ireland, too. Brexit didn't only hurt UK citizens. It hurt everyone. If you're thinking of immigrating to Ireland you may already have missed the boat.

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If this blog interests you, then you might want to know more about living and working in Ireland. Are you thinking of traveling to Irelandmoving to Irelandworking in Ireland? Do you want to understand what makes the Irish tick, how you can get a job here, and how to survive in this wonderful country? If so, consider purchasing the 2015 Kindle edition of A Survivor's Guide to Living in Ireland. Over 11,000 have already done so! Now over 85,000 words long, this book could make the perfect gift for those interested in this wonderful country. Simply click on any of the above links to purchase the new 2015 Kindle edition. You can also download free apps to read the Kindle version on any PC or Mac. 

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